During the opening of the financial markets on July 27, the spread between Italian and German bonds fell to 81 basis points, while the yields on benchmark 10-year BTPs fell to 3.95%. These are significantly lower figures than those of the closing on Friday 24th and above all of the entire last week.
The instability in the Middle East had in fact led Italian government bonds to record returns, which had not been seen for years except with rare exceptions. A peak that was consolidating and which was dampened only by the pause in US attacks in Iran.
The spread falls, yields remain high
Although the spread has narrowed by three points compared to last week’s close, the spread remains at very high levels compared to the recent past. Likewise, yields fell below 4%, a psychological threshold which however is not that far from the results achieved in the early hours of July 27th. The situation is increasingly linked to the Middle East and the consequences that the war will have on the Italian economy.
Yields tumbled over the weekend
What happened between Friday 24th and Monday 27th July is a rather rare collapse in yields in a relatively stable market like that of government bonds. The yield on benchmark ten-year BTPs fell by almost a tenth of a percentage point, going from 4.04% to 3.95%.
It was enough for the United States to stop attacking Iran for two days. The price of oil has fallen again, Tehran has declared that it will not attack if the US stops bombing, and investors have regained confidence in the Italian economy.
Despite this, 3.95% remains a very high yield compared to the recent past, especially on the eve of three days of auctions.
Spread over 80 points due to the Bunds’ “fault”.
Yields fell by almost 10 cents but the spread only narrowed by three points, from 84 to 81. The reason is that Bunds also saw their interest rates collapse.
Over the weekend, German securities went from 3.19% to 3.14%, a lower drop than the Italian one but still significant, especially for financial products that are usually very stable such as Bunds. This limited the descent of the differential.
European spreads are also falling
The situation in the rest of Europe followed the Italian trail, in terms of trend but not in terms of proportions. In Spain the Bonos reduced the spread to 44 basis points, with yields at 3.58%, which fell by eight points on Friday.
| Government bonds | Returns | Spreads | Variation of the spread |
|---|---|---|---|
| German Bunds | 3.14% | – | – |
| Italian BTPs | 3.95% | 81 | -3 |
| French Oats | 3.92% | 78 | -4 |
| Spanish bonos | 3.58% | 44 | -3 |
Similarly, French Oats saw their yields drop by almost a tenth of a point and the spread fell below 80, to 78 basis points.
Government bond auctions begin tomorrow
Government bond auctions will begin on 28 July, starting with short-term BTPs, and then continuing with BOTs and medium and long-term products. The latest announcement on the details of the issues is expected today, precisely for this latest auction.
The exact dates of the auctions are:
- The auction of Short Term BTPs and BTP€i will take place on 28 July;
- Bot auction on July 29th;
- auction of medium and long-term bonds on 30 July.
